Unending Graft Is Threatening Latin America

RIO DE JANEIRO, July 29 - As he campaigned for the presidency in 2002, Luiz Inácio Lula da Silva boldly pledged to clean up the sordid politics of Brazil. His, he vowed, would be an ethical, honest and moral government the likes of which Brazil had never seen.

That pledge helped him win the votes of more than 50 million Brazilians and a sweeping mandate. But now, in a gloomy echo of what has happened time and again across Latin America, Mr. da Silva's government is mired in the biggest, most audacious corruption scandal in his country's history.

A congressional inquiry has heard testimony that the governing Workers' Party paid dozens of deputies from other parties a $12,500 monthly stipend for their support. This month, a party functionary was detained at an airport with $100,000 -- stashed in his underwear -- which he claimed to have earned selling vegetables.

Mr. da Silva's chief aide has been forced to resign, as have the president, secretary general and treasurer of the Workers' Party. While Mr. da Silva has not yet been accused in the scheme, speculation that he could face impeachment is widespread, and the first street demonstrations against him, small but indignant, started this week.

Brazil's scandal is just the latest reminder of the unremitting corruption that has marked Latin American politics since colonial times, when absolute rulers regarded newly conquered realms in the New World as their personal property. The important difference today is that popularly elected governments now hold sway, and corruption has emerged as one of the gravest threats to the hard-won democratic gains of the last 20 years.

Across the region, these second-generation democrats have proved a disappointment, and their ineffectiveness and low standing have allowed political instability and economic disparity to grow. Opinion polls routinely cite corruption as a top cause for a dangerous disillusionment sweeping the region. The disaffection has led to violent popular outbursts, including the lynching of public officials in Peru, and has helped force out eight heads of state in five years.

"This is the great problem, and there simply has not been a break from the past," said Edgar Villanueva, a congressman who is leading one of several investigations of the government of President Alejandro Toledo in Peru. "What has happened in Latin America is we have not been able to get good people into power. The person in power always maintains ties to his small power base, and they forget the people, they forget their promises."

Mr. Toledo, too, came to power with similar pledges to clean up past corruption, succeeding a government under Alberto K. Fujimori, whose byzantine networks of bribery and extortion seemed to set a new standard for the region.

Today more than a dozen of Mr. Toledo's relatives, including his wife and brothers, are accused of using their influence for personal gain. Opinion polls give him among the lowest ratings of any Latin American leader, and his government has been bled by nearly constant media sniping over the scandals. Similar accusations in Ecuador contributed to the fall of President Lucio Gutiérrez in April.

Farther north the story is nearly the same. In Mexico, President Vicente Fox came to power in 2000, sweeping out the notoriously corrupt and authoritarian Institutional Revolutionary Party that governed for more than seven decades. But he has failed on almost every front to reverse corruption's course, from police departments along the increasingly violent border with the United States to scandals in his own administration.

Not only have Mr. Fox's efforts to prosecute former government officials suspected of funneling state oil money into political campaigns come to naught, but it has come to light that his own campaign fund, Friends of Fox, took illegal contributions. His wife, Marta Sahagún de Fox, is embroiled in a series of scandals over the use of millions of dollars flowing into her charity organization, and her sons have come under congressional scrutiny for contracts they won to build public housing.

Throughout Central America, too, prosecutors are pursuing cases against current and former leaders who lined their pockets while in power. In Nicaragua, former President Arnoldo Alemán has already been convicted of diverting state funds for his personal use and is appealing a 20-year sentence. Costa Rican prosecutors have accused two former presidents of taking kickbacks to award lucrative government contracts. And in Guatemala, the state's attorneys are seeking the extradition of former President Alfonso Portillo from Mexico on charges he embezzled $15.7 million.

Some point to the flourishing of cases as evidence that judicial systems and governments are finally taking bad leaders to task. But many analysts and citizens regard the persistence of patronage, nepotism and bribery as a telling measure of the low quality of the region's democracies and of how little elite attitudes have changed since the time when colonial overlords ruled for the purposes of extraction and enrichment with little regard for the people beneath them.

International groups like the World Bank say official graft and nepotism are so powerful that they are rotting government institutions and stunting economic growth. In recent Congressional testimony in Washington, American officials estimated that official corruption might shave as much as 15 percent off annual growth in Latin America, as public funds are pilfered and wary foreign investors shy away.

Latin Americans regard corruption as their most serious problem after the region's economic crisis, according to a survey of 18 countries taken in 2004 by Latinobarómetro, a Chilean public opinion firm that regularly conducts surveys around the continent.

Eighty percent of respondents have also consistently said that they perceive that corruption has increased, while other surveys show that in some Latin American countries, like Argentina, people believe that corruption has a significant effect on the ways business and politics are carried out.

"The impact of corruption on our economies is huge, just huge," said José Ugaz, a Peruvian who investigated the crimes of the Fujimori government and investigates corruption for the World Bank. "Then there are other effects that cannot be easily measured -- people not having confidence in their governments, thinking officials are stealing money."

"When the people lose confidence in the people governing the country," he added, "immediately the loss of confidence generates a lot of problems, and one of them is unrest."

Frustration has reached dangerous levels in several countries, with sometimes violent street protests. The shift from authoritarian governments to democracies, many had hoped, would squelch the kind of corruption that predominated when dictators ran the affairs of state to the benefit of a small clique of insiders and threatened whistle-blowers.

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Yet successor governments across the political spectrum, whether free-market advocates like Mr. Toledo or self-proclaimed leftists like Mr. da Silva, have proved even more susceptible. With once-closed economies having been opened up and corporate profits at record levels, the opportunities for graft and bribes are larger than ever.

So widespread is the disgust that last year another regionwide poll found that a majority of Latin Americans would prefer a return to dictatorship if it would bring economic benefits. Despite improved economic indicators since then, the ranks of the poor have continued to swell, as has the resentment of those who are pocketing the wealth of the nation for their own benefit.

While some states have markedly improved, notably Chile and Uruguay, they are the exceptions, and the envy of their neighbors. Venezuela, Paraguay and Bolivia have all had increases in corruption or have shown practically no improvement in fighting it, the annual survey by the corruption watchdog Transparency International shows.

"There is not much of a change in these countries," said Myles Frechette, a former American ambassador to Colombia who now advises businesses investing in Latin America. "In Brazil, the Workers' Party used to yell its head off about how corrupt all the parties were, but then they get into power and guess what, the Workers' Party was plugged in."

The Brazilian scandal in fact extends even beyond under-the-table payments to legislators. It also includes clandestine campaign contributions by companies seeking government contracts, gifts of a Land Rover and other benefits to party leaders and a secret $30 million slush fund that party leaders could dip into for purposes as yet unknown.

"Lula found a spurious form of organizing power in this country" when he took office early in 2003, César Benjamin, a disgruntled founding member of the Workers' Party, who is now a political science professor, wrote in a recent essay. "And instead of fighting to change it, as was his political and moral obligation, he adapted himself to it."

"The apparatus of the state has continued to be treated as booty," he added.

Corruption shows itself in many ways, but perhaps its most glaring and grating form is nepotism and patronage, the flaunting of political connections that so alienates ordinary people. Those practices also take many forms, from outright bribes to jobs and contracts awarded to unqualified or inexperienced people who happen to be related to those in power.

Here in Brazil, for example, when one of Mr. da Silva's sons opened an advertising agency, a telephone company in which government banks and pension funds hold shares supplied the start-up capital. In Peru, President Toldeo's youngest brother, Pedro, is charged with having used his influence to obtain a 20-year telephone concession for a new company -- with just $1,500 in assets. Another brother, Luis, is under investigation on suspicion of using his family name to obtain land from the Ministry of Agriculture.

President Toledo's troubles began almost immediately, said Fernando Rospigliosi, a respected journalist who was his first minister of the interior. Militants from his governing party, Peru Possible, demanded jobs in ministries and other agencies as soon as Mr. Toledo took office, he said. Among those knocking on doors were members of the president's family, including his brother Pedro and his sister, Margarita, he said.

"They were dazzled by power and money and they immediately tried to take advantage, and they did it like it was the most natural thing in the world," Mr. Rospigliosi said. "They would show up at ministries and ask people to be placed in certain jobs. It's very Peruvian. You obtain power and you use the power for your own benefit."

Perhaps most ominous for the region's democratic health is that recent scandals, especially the one here, involve corruption not simply for personal enrichment, but also to obtain and hold onto power indefinitely, threatening democratic institutions themselves. Yet the leaders involved have denied wrongdoing and have been loath to accept any responsibility.

A congressional commission has questioned President Toledo over his role in a related petition-forgery scheme that investigators say his sister, Margarita, headed in the late 1990's and was intended to register enough signatures to put his name on the ballot. The president has so far insisted that such a scheme never existed.

"This is a factory of lies," he recently said on a television program. "Take me at my word. I'm telling the truth."

As his government and his reputation collapse around him, Mr. da Silva in Brazil has taken a similar tack. He initially contended that "as regards its electoral behavior, the Workers' Party did what has been done systematically in Brazil." But he has since abandoned those excuses in favor of protestations of innocence and personal integrity.

"Among 180 million Brazilians, there is no one, neither man nor woman, with the authority to lecture me about ethics, morals or honesty," he said in a speech here last week. "In this country, the person who can debate ethics with me has yet to be born."

Articles in this series examine the impact of corruption on democracy and economic development around the world. Audio of Larry Rohter, additional photographs and the previous article in the series are at nytimes.com/world.

The Hidden Scourge Correction: August 4, 2005, Thursday A chart on Saturday with an article about corruption in Latin America included a mutilated date for a poll in which people in 18 Latin American countries were asked whether they felt progress had been made in reducing corruption. It was May and June 2004.

Larry Rohter reported from Rio de Janeiro for this article, and Juan Forero from Lima, Peru. James C. McKinley Jr. contributed reporting from Mexico City.